How do you apply CALIFORNIA 546-day "safe harbor" on Proseries?

[Gildardo]

Client was a resident of California and a married taxpayer. He moved to Japan on January 22, 2016 for an undefined time with intentions to coming back to California. Wife moved too but until July 17, 2016. 
Client owns a residence in California and both maintained their California bank accounts and driver’s licenses. During that time they did only one trip back to California from March 11, 2017 to March 20,

2017. It was a personal trip.

I am filling 2016 and 2017 Taxes.

For 2016 it’s my understanding that he doesn't qualify for CA-546 protection so he will pay California income taxes on all his income.

For 2017 it’s my understanding that he qualifies under CA-546 protection after the 547th day. That will be on July 31, 2017, adding the 10 day trip. Is this correct?

And how do you file 2017 with CA 546-day "safe harbor" protection on Proseries? Do I add his income from Jan 1 up to July 31 on Column E of the Sch CA so he pays taxes on that and the rest of the year is

just tax free?

Ouch California taxes.

[itonewbie · Accepted solution]

You do not have to wait until all the conditions under the safe harbor rule are satisfied before filing a return.  There must, however, be a realistic expectation that all the conditions will be met from the get-go.

Given you are considering the application of the safe harbor rule, I presume the taxpayers are in Japan for an employment-related contract that lasts at least 546 consecutive days, do not have more than $200k in intangible income per annum, and are not away from CA with a principal purpose of avoiding income tax.

For the purpose of the safe harbor rule, presence of no more than 45 days in CA during any calendar year covered by the employment-related contract would be considered temporary and not interrupt the 546-day period - if they had only one 10-day trip to CA in 2017, they would have met this requirement.

For 2016, assuming what I stated in the previous paragraphs are correct, the taxpayer should qualify as a part-year resident and be taxable to CA only for the period of residency.  You may, however, need to consider whether the spouse is relying on the taxpayer's employment contract or her own to determine not only her (and the taxpayer's) CA residency period but whether to file MFJ or MFS (which must be the same for both CA and Fed) and consider the total tax exposure given CA does not conform to §911 and is a community property state.

For 2017, it would appear, based on the limited information available, that they should qualify as NR for CA tax purposes under the safe harbor rule.

There is nothing special you'd need to do on the CA return with respect to the safe harbor rule.  If the taxpayer (and the spouse) is/are to be treated as part-year resident(s) for 2016, they will only need to file CA-540NR with a Schedule CA (540NR) to report their period(s) of residency, days spent in CA, etc. along with income earned within and without CA.

It appears you may not fully understand the application and may like to read up on the rule again in more details.

[Gildardo]

I'll follow your advice seem I was confused about it. May the force be with you!

[itonewbie]

:smile: :+1: